Kazakhs Loosen Tenge Band as Central Bank Targets Free Float

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Kazakhstan’s central bank widened the tenge’s trading band against the dollar as policy makers push ahead with their goal of shifting to a free-floating exchange rate after 2016.

The central bank raised the tenge’s upper trading limit to 198 per dollar, central bank Governor Kairat Kelimbetov told reporters in Astana Wednesday. That’s 5.1 percent weaker than the previous ceiling. Within the band, the tenge is unlikely to depreciate beyond 190 this quarter, he said.

“This corridor allows the currency to fluctuate independently of the negative scenarios that may take shape outside Kazakhstan,” Kelimbetov said. It will “answer the challenges in the coming six to twelve months.”

Pressure is mounting on Kelimbetov to let the currency weaken after oil prices slumped and Russia’s ruble sank 46 percent last year, hurting the ability of Kazakh companies to compete with the nation’s biggest trading partner. Even after gaining since January, the ruble is still 39 percent weaker than a year ago, while the tenge has depreciated just 1.9 percent in the period.

Tenge Fluctuation

The lower limit of the band was kept at 170, or 15 tenge stronger than the central bank’s base level of 185 per dollar, he said. Policy makers devalued the tenge 19 percent in February last year.

“In the coming six months, the tenge will fluctuate within the range of the previous six months,” Kelimbetov said. The wider corridor allows for “more room to maneuver in the next 12 months,” he said.

The Kazakh currency weakened 0.1 percent to 187.05 against the dollar. That compares with about 182.5 at the start of 2015.

The tenge’s limited depreciation and Kazakhstan’s low price growth, along with high inflation in Russia, will help correct a trade imbalance that formed in December last year, Kelimbetov said. The situation has changed from the first half of last year, he said.